QUESTION 1

Federal Income Tax is the tax levied to individuals, corporations, legal entities and
trusts by the Internal Revenue Services. (investopedia.com; Kagan, 2021).
Florida’s federal income tax rate is at 12.81%.
According to the centre on budget and policy priorities’ Survey of 2003- 2012, the
lion’s share of bonds issued to states for infrastructure development is mainly schools,
hospitals, water and sewerage facilities and toll roads, highways, and streets
(cbpp.org; Copyright,2021).

The cost of borrowing municipal bonds for infrastructure development is lower in

states that tax securities outside the state at a higher rate than securities inside the state
(Kidwell, Koch, Stock, 1984).
Therefore, it increases the demand for in-state municipal securities, which will
increase the federal tax income.

QUESTION 2
Adverse selection is a situation where information is withheld from buyers by the
sellers. This information is known as asymmetrical information. (investopedia.com:
Hayes, 2021).
Specialised lending is a collateral-based type of lending that reduces the risk of banks
accruing losses from lending money if the client is unable to repay the loan. There are
five sub-classes: object finance, project finance, commodities finance, real estate
finance, and high volatility commercial real estate.
Most of the time, the client may be unable to disclose their inability to repay the loan
or circumstances may arise unforeseen by the bank that may make the client unable to
repay the loan.
In such a scenario, the cash flows arising from the assets used as securities secure the
debt. ((SPECIALISED LENDING, 2021)
REFERENCES
1. KAGAN, & URADU. (2021, April 13). Understanding the Federal Income Tax.

Investopedia. https://www.investopedia.com/terms/f/federal_income_tax.asp

2. Policy Basics: State and Local Borrowing. (2015, January 15). Center on Budget and
Policy Priorities. https://www.cbpp.org/research/state-budget-and-tax/state-and-local-
borrowing

3. KIDWELL, D., KOCH, T., & STOCK, D. (1984). THE IMPACT OF STATE
INCOME TAXES ON MUNICIPAL BORROWING COSTS. National Tax
Journal, 37(4), 551-561. Retrieved April 30, 2021, from
http://www.jstor.org/stable/41791985

4. HAYES, & ESTEVEZ. (2021, January 19). Adverse Selection. Investopedia.

https://www.investopedia.com/terms/a/adverseselection.asp

5. SPECIALISED LENDING. (2021). Ebrary.Net.

https://ebrary.net/12870/management/specialied_lending#:~:text=Essentially%2C

%20specialized%20lending%20has%20a,high%2Dvolatility%20commercial

%20real%20estate.